Item loot was never a good way to incentivize PVP, and an even worse way to punish PVP loss.
Honestly one of the better ways to add PVP into a PVE game I've seen is how WoW would have a dungeon only available to the side that had won a battleground. You can argue (successfully) that it was implemented in a shitty way but the theory behind it is sound.
In a game about items (EQ character progress is 100% items) I think that battling over the ability to acquire an item is a far better incentive to PVP then the chance to take an already earned item from another player. It is for that reason you'll rarely if every see a 40v40 type fight in the middle of a zone for no apparent reason, but you may see it as people battle over zone control to drop a dragon.
It also has the added benefit of people always wearing their sunday best (competitive PVP) and minimizing/removing the "shitty death" factor of going LD or something.
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